Senseonics 10Q 2023 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-37717

Senseonics Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)	3841 (Primary Standard Industrial Classification Code Number)	47-1210911 (I.R.S. Employer Identification Number)

20451 Seneca Meadows Parkway

Germantown, MD 20876-7005

(301) 515-7260

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	SENS	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 528,281,405 shares of common stock, par value $0.001, outstanding as of November 3, 2023.

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TABLE OF CONTENTS

PART I: Financial Information

ITEM 1: Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022	4
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2023 and 2022	5
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	6
Notes to Unaudited Condensed Consolidated Financial Statements	7

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk	39

ITEM 4: Controls and Procedures	39

PART II: Other Information	40

ITEM 1: Legal Proceedings	40

ITEM 1A: Risk Factors	40

ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds	40

ITEM 3: Defaults Upon Senior Securities	41

ITEM 4: Mine Safety Disclosures	41

ITEM 5: Other Information	41

ITEM 6: Exhibits	41

SIGNATURES	43

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Senseonics Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 30,		December 31,
	2023		2022
		(unaudited)

Assets
Current assets:
Cash and cash equivalents	$	55,759	$	35,793
Short term investments, net		69,648		108,222
Accounts receivable, net		701		127
Accounts receivable, net - related parties		2,749		2,324
Inventory, net		9,726		7,306
Prepaid expenses and other current assets		7,557		7,428
Total current assets		146,140		161,200

Deposits and other assets		6,991		3,108
Long term investments, net		—		12,253
Property and equipment, net		934		1,112
Total assets	$	154,065	$	177,673
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	2,669	$	419
Accrued expenses and other current liabilities		14,356		14,616
Accrued expenses and other current liabilities, related parties		277		837
Note payable, current portion, net		—		15,579
Derivative liability, current portion		—		20
Total current liabilities		17,302		31,471

Long-term debt and notes payables, net		40,485		56,383
Derivative liabilities		245		52,050
Other liabilities		6,312		2,689
Total liabilities		64,344		142,593

Preferred stock and additional paid-in-capital, subject to possible redemption: $0.001 par value per share; 12,000 shares and 12,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022		37,656		37,656
Total temporary equity		37,656		37,656

Commitments and contingencies

Stockholders’ equity (deficit):
Common stock, $0.001 par value per share; 900,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 528,176,273 shares and 479,637,138 shares issued and outstanding as of September 30, 2023 and December 31, 2022		528		480
Additional paid-in capital		903,665		806,488
Accumulated other comprehensive loss		(59)		(678)
Accumulated deficit		(852,069)		(808,866)
Total stockholders’ equity (deficit)		52,065		(2,576)
Total liabilities and stockholders’ equity	$	154,065	$	177,673

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Revenue, net	$	426	$	126	$	1,176	$	555
Revenue, net - related parties		5,671		4,496		13,184		10,263
Total revenue		6,097		4,622		14,360		10,818
Cost of sales		4,925		3,866		12,358		8,711
Gross profit		1,172		756		2,002		2,107

Expenses:
Research and development expenses		12,769		10,985		38,003		28,088
Selling, general and administrative expenses		7,425		7,340		22,598		23,785
Operating loss		(19,022)		(17,569)		(58,599)		(49,766)
Other income (expense), net:
Interest income		1,460		544		3,879		878
Gain (Loss) on fair value adjustment of option		—		(8,592)		—		41,333
Exchange related gain (loss), net		(4,569)		—		14,207		—
Interest expense		(2,425)		(4,801)		(9,388)		(13,806)
Gain (Loss) on change in fair value of derivatives		438		(28,948)		6,505		152,169
Impairment cost, net		—		(984)		—		(138)
Other income (expense)		15		(41)		194		(112)
Total other (expense) income, net		(5,081)		(42,822)		15,397		180,324

Net (Loss) Income		(24,103)		(60,391)		(43,202)		130,558
Other comprehensive income (loss)
Unrealized gain (loss) on marketable securities		61		(57)		619		(973)
Total other comprehensive gain (loss)		61		(57)		619		(973)
Total comprehensive (loss) income	$	(24,042)	$	(60,448)	$	(42,583)	$	129,585

Basic net (loss) income per common share	$	(0.04)	$	(0.13)	$	(0.08)	$	0.28
Basic weighted-average shares outstanding		592,452,262		472,475,747		552,703,546		464,244,736

Diluted net loss per common share	$	(0.04)	$	(0.13)	$	(0.08)	$	(0.10)
Diluted weighted-average shares outstanding		592,452,262		472,475,747		552,703,546		608,345,713

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands)


				Additional		Accumulated				Total		Series B
	Common Stock			Paid-In		Other		Accumulated		Stockholders'		Convertible
	Shares	Amount		Capital		Comprehensive Loss		Deficit		Equity (Deficit)		Preferred Stock Temporary Equity
Three months ended September 30, 2022:
Balance, June 30, 2022	465,326	$	465	$	776,640	$	(1,128)	$	(760,036)	$	15,941	$	—
Issuance of common stock, net of issuance costs	12,084		12		26,427		—		—		26,439		—
Exercise of stock options and warrants	681		1		711		—		—		712		—
Issued common stock for vested RSUs and ESPP purchase	121		—		69		—		—		69		—
Stock-based compensation expense	—		—		2,222		—		—		2,222		—
Net loss	—		—		—		—		(60,391)		(60,391)		—
Other comprehensive loss, net of tax	—		—		—		(57)		—		(57)		—
Balance, September 30, 2022	478,212	$	478	$	806,069	$	(1,185)	$	(820,427)	$	(15,065)	$	—

Nine months ended September 30, 2022:
Balance, December 31, 2021	447,282	$	447	$	765,215	$	(212)	$	(950,985)	$	(185,535)	$	—
Issuance of common stock, net of issuance costs	15,161		15		34,428		—		—		34,443		—
Exercise of stock options and warrants	9,892		10		941		—		—		951		—
Issued common stock for vested RSUs and ESPP purchase	6,970		7		125		—		—		132		—
Stock-based compensation expense	—		—		6,543		—		—		6,543		—
Shares withheld related to net share settlement of equity awards	(1,093)		(1)		(1,183)		—		—		(1,184)		—
Net income	—		—		—		—		130,558		130,558		—
Other comprehensive loss, net of tax	—		—		—		(973)		—		(973)		—
Balance, September 30, 2022	478,212	$	478	$	806,069	$	(1,185)	$	(820,427)	$	(15,065)	$	—

Three months ended September 30, 2023:
Balance, June 30, 2023	492,827	$	493	$	880,129	$	(120)	$	(827,965)	$	52,537	$	37,656
Issued common stock for vested RSUs and ESPP purchase	210		1		117		—		—		118		—
Exercise of stock options and warrants	—		—		5		—		—		5		—
Exchange of 2025 Notes	35,139		35		20,967		—		—		21,002		—
Issuance of warrants, net of issuance costs	—		—		363		—		—		363		—
Stock-based compensation expense	—		—		2,084		—		—		2,084		—
Net loss	—		—		—		—		(24,103)		(24,103)		—
Other comprehensive income, net of tax	—		—		—		61		—		61		—
Balance, September 30, 2023	528,176	$	528	$	903,665	$	(59)	$	(852,069)	$	52,065	$	37,656

Nine months ended September 30, 2023:
Balance, December 31, 2022	479,637	$	480	$	806,488	$	(678)	$	(808,866)	$	(2,576)	$	37,656
Issuance of common stock, net of issuance costs	9,945		10		7,366		—		—		7,376		—
Issued common stock for vested RSUs and ESPP purchase	5,581		6		199		—		—		205		—
Issuance of warrants, net of issuance costs	—		—		63,645		—		—		63,645		—
Exercise of stock options and warrants	6		—		3		—		—		3		—
Exchange of 2025 Notes	35,139		35		20,967		—		—		21,002		—
Stock-based compensation expense	—		—		6,735		—		—		6,735		—
Shares withheld related to net share settlement of equity awards	(2,132)		(2)		(1,601)		—		—		(1,603)		—
Other	—		—		(137)		—		—		(137)		—
Net loss	—		—		—		—		(43,202)		(43,202)		—
Other comprehensive income, net of tax	—		—		—		619		—		619		—
Balance, September 30, 2023	528,176	$	528	$	903,665	$	(59)	$	(852,069)	$	52,065	$	37,656

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine Months Ended
	September 30,
	2023		2022
Cash flows from operating activities
Net (loss) income	$	(43,202)	$	130,558
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization expense		641		751
Non-cash interest expense (debt discount and deferred costs)		6,581		8,858
Net amortization of premiums and accretion of discounts on marketable securities		(2,253)		—
Gain on change in fair value of derivatives		(6,505)		(152,169)
Gain on fair value adjustment of option		—		(41,333)
Exchange related (gain) loss, net		(14,207)		—
Impairment of option, net		—		138
Stock-based compensation expense		6,735		6,543
Provision for inventory obsolescence and net realizable value		89		—
Loss on disposal of assets		5		—
Other		56		—
Changes in assets and liabilities:
Accounts receivable		(998)		(151)
Prepaid expenses and other current assets		(129)		504
Inventory		(2,509)		(941)
Deposits and other assets		(342)		163
Accounts payable		669		(519)
Accrued expenses and other liabilities		1,161		(1,070)
Accrued interest		(292)		(257)
Operating lease liabilities		(596)		—
Net cash used in operating activities		(55,096)		(48,925)
Cash flows from investing activities
Capital expenditures		(180)		(255)
Purchase of marketable securities		(68,537)		(82,807)
Proceeds from sale and maturity of marketable securities		122,235		102,594
Net cash provided by investing activities		53,518		19,532
Cash flows from financing activities
Issuance of common stock, net of issuance costs		7,376		34,443
Issuance of stock options, net of issuance costs		71		1,083
Taxes paid related to net share settlement of equity awards		(1,603)		(1,184)
Repayment of 2023 Notes		(15,700)		—
Repayment of 2025 Notes		(7,500)		—
Repayment of term loans		—		(2,926)
Proceeds from issuance of Loan and Security Agreement, net		24,446		—
Payment of debt issuance costs		(244)		—
Proceeds from issuance of warrants, net		14,698		—
Net cash provided by financing activities		21,544		31,416
Net increase in cash, cash equivalents		19,966		2,023
Cash, cash equivalents, at beginning of period		35,793		33,461
Cash, cash equivalents, at ending of period	$	55,759	$	35,484

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	3,100	$	5,137
Lease liabilities arising from obtaining right-of-use assets		3,831		2,944
Supplemental disclosure of non-cash investing and financing activities
Issuance of warrants in exchange for PHC Notes		48,564		—
Issuance of warrants for Loan and Security Agreement		364		—
Issuance of common stock converted from 2025 Notes		21,002		—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Senseonics Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.	Organization and Nature of Operations

Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the development and manufacturing of long-term, implantable continuous glucose monitoring (“CGM”) systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy.

Senseonics, Incorporated is a wholly owned subsidiary of Senseonics Holdings, Inc. and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings, Inc. and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.

2.	Liquidity and Capital Resources

From its founding in 1996 until 2010, the Company has devoted substantially all of its resources to researching various sensor technologies and platforms. Beginning in 2010, the Company narrowed its focus to developing and refining a commercially viable glucose monitoring system. The Company has incurred substantial losses and cumulative negative cash flows from operations since its inception in October 1996 and expects to incur additional losses in the near future. We incurred total gross profit (loss) of $2.7 million, ($0.8) million, and ($17.4) million for the years ended December 31, 2022, 2021 and 2020, respectively. For the three months ending September 30, 2023, the Company had gross profit of $1.2 million and an accumulated deficit of $852.1 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, warrants, convertible notes and debt. As of September 30, 2023, the Company had cash, cash equivalents and marketable securities of $125.4 million.

On September 8, 2023 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with the several institutions or entities party thereto (collectively, the “Lenders") and Hercules Capital, Inc., a Maryland corporation (“Hercules”) in its capacity as administrative agent and collateral agent for itself and the Lenders, pursuant to which the Lenders have agreed to make available to the Company up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on September 1, 2027 (the “Maturity Date”).

On August 10, 2023, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (the “Noteholders”) of the Company’s currently outstanding 5.25% Convertible Senior Notes due 2025 (the “2025 Notes”). Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company (the “Exchanges”) up to $30.8 million in aggregate principal amount of the 2025 Notes (the “Exchanged Notes”) for a combination of $7.5 million of cash and newly issued shares of common stock (the “Exchange Shares”). The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.

In August 2023, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Goldman Sachs & Co. LLC (“GS”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $106.6 million through GS as its sales agent in an “at the market” offering. GS will receive a commission up to 3.0% of the gross proceeds of any common stock sold through GS under the Equity Distribution Agreement. The shares will be offered and sold pursuant

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to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on August 10, 2023. As of September 30, 2023, no sales have been made under the Equity Distribution Agreement.

In November 2021, the Company entered into an Open Market Sale Agreement, (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as its sales agent in an “at the market” offering. Jefferies received commissions up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During 2023, the Company received $7.4 million in net proceeds from the sale of 9,944,663 shares of its common stock under the 2021 Sales Agreement. For the nine months ended September 30, 2022, the Company received $34.4 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement. Effective August 7, 2023, the Company and Jefferies mutually agreed to terminate the 2021 Sales Agreement. At the time of termination, approximately $106.6 million remained available for issuance pursuant to the 2021 Sales Agreement.

On November 9, 2020, the Company entered into an Equity Line Agreement (the “Equity Line Agreement”) with Energy Capital, LLC, a Florida limited liability company (“Energy Capital”), which provided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital was committed to purchase up to an aggregate of $12.0 million of shares of the Company’s newly designated series B convertible preferred stock (the “Series B Preferred Stock”) at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, the Company had the right, at its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provided that the Company was not permitted to affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock. The excess of the Purchase Price and the fair value of the Energy Capital option in the total amount of $37.6 million was recorded in additional-paid-in-capital as convertible preferred stock.

On August 9, 2020, the Company entered into a financing agreement with the parent company of Ascensia Diabetes Care Holdings AG (“Ascensia”), PHC Holdings Corporation (“PHC”), pursuant to which the Company issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to PHC. The Company also issued 2,941,176 shares of common stock to PHC as a financing fee. The Company also has the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining U.S. Food and Drug Administration (“FDA”) approval for the 180-day Eversense product for marketing in the United States before such date. The Company successfully obtained FDA approval in February 2022 and the option was not exercised. As described in Note 12, on March 13, 2023, the Company entered into an Exchange Agreement (the “PHC Exchange Agreement”) with PHC, pursuant to which PHC agreed to exchange (the “PHC Exchange”) its $35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for a warrant (the “PHC Exchange Warrant”) to purchase up to 68,525,311 shares of the Company’s common stock, $0.001 par value per share (the “PHC Exchange Warrant Shares”). The PHC Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per PHC Exchange Warrant Share. On March 31, 2023, the PHC Exchange was consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.

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On March 13, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with PHC, pursuant to which the Company issued and sold to PHC in a private placement (the “Private Placement”) a warrant (the “Purchase Warrant”) to purchase 15,425,750 shares of the Company’s common stock, $0.001 par value per share (the “Purchase Warrant Shares”). The purchase price of the Purchase Warrant was approximately $0.97 per Purchase Warrant Share, representing the undiscounted, trailing 10-day volume weighted average price of the Company’s common stock through March 10, 2023. The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share. The issuance of the Purchase Warrants enabled PHC to maintain, as of the closing of the transaction, a 15% beneficial ownership for purposes of the Investor Rights Agreement, dated August 9, 2020, between the Company and PHC. The Private Placement closed on March 13, 2023 (the “Private Placement Closing Date”) and the Company received aggregate gross proceeds of $15.0 million, before deducting private placement expenses payable by the Company.

3.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Although the Company considers the disclosures in these unaudited consolidated financial statements to be adequate to make the information presented not misleading, certain information or footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the SEC. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position at September 30, 2023, and December 31, 2022, results of operations, comprehensive income (loss), and changes in stockholder’s deficit for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022 have been included. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 16, 2023. The interim results for September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for any future interim periods.

The consolidated financial statements reflect the accounts of Senseonics Holdings, Inc. and its wholly owned operating subsidiary Senseonics, Incorporated. The Company views its operations and manages its business in one segment, glucose monitoring products. Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company currently holds investments in available-for-sale securities. The Company has not historically experienced collection issues or bad debts with trade receivables. The Company adopted this guidance as of January 1, 2023 and its adoption did not have a material impact on the consolidated financial statements and related disclosures.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, fair value of investments, derivative assets and liabilities, obsolete inventory, warranty

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obligations, variable consideration related to revenue, allowance for credit losses, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses. Actual results could differ from those estimates; however, management does not believe that such differences would be material.

Significant Accounting Policies

The accounting policies used by the Company in its presentation of interim financial results are consistent with those presented in Note 3 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

4. Revenue Recognition

The Company generates product revenue from sales of the Eversense system and related components and supplies to Ascensia, through a collaboration and commercialization agreement (the “Ascensia Commercialization Agreement”), third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively, the “Customers”), who then resell the products to health care providers and patients. Customers pay the Company for sales, regardless of whether or not the Customers resell the products to health care providers and patients. The Company’s policies for recognizing sales have not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2022.

Revenue by Geographic Region

The following table sets forth net revenue derived from the Company’s two primary geographical markets, the United States and outside of the United States, based on the geographic location to which the Company delivers the product, for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended				Nine Months Ended
	September 30, 2023				September 30, 2023
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
United States	$	3,930	64.5	%	$	7,885	54.9	%
Outside of the United States		2,167	35.5			6,475	45.1
Total	$	6,097	100.0	%	$	14,360	100.0	%


	Three Months Ended				Nine Months Ended
	September 30, 2022				September 30, 2022
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
United States	$	1,934	41.8	%	$	3,908	36.1	%
Outside of the United States		2,688	58.2			6,910	63.9
Total	$	4,622	100.0	%	$	10,818	100.0	%

Contract Assets

Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia Commercialization Agreement. Accounts receivable –

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related parties, net as of September 30, 2023 and December 31, 2022 included unbilled accounts receivable of $1.3 million and $1.7 million, respectively. The Company expects to invoice and collect all unbilled accounts receivable within 12 months.

Concentration of Revenue and Customers

For the three months ended September 30, 2023 and 2022, the Company derived 93% and 97%, respectively, of its total revenue from one customer, Ascensia. For the nine months ended September 30, 2023 and 2022, the Company derived 92% and 95%, respectively of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent sales of sensors, transmitters and miscellaneous Eversense system components.

5. Net Income (Loss) per Share

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. An aggregate of 83,951,061 shares of common stock issuable upon the exercise of the PHC Exchange Warrant Shares and the Purchase Warrant Shares held by PHC are included in the number of outstanding shares used for the computation of basic net income (loss) per share for the three and nine months ended September 30, 2023. Since the shares are issuable for little or no consideration, sometimes referred to as “penny warrants”, they are considered outstanding in the context of earnings per share, as discussed in ASC 260-10-45-13.

Dilutive net income (loss) per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents. Potentially dilutive common shares consist of shares issuable from restricted stock units, stock options, warrants and the Company’s convertible notes. Potentially dilutive common shares issuable upon vesting of restricted stock units and exercise of stock options and warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of the Company’s convertible notes are determined using the if converted method. The if-converted method assumes conversion of convertible securities at the beginning of the reporting period. Interest expense, dividends, and the changes in fair value measurement recognized during the period are added back to the numerator. The denominator includes the common shares issuable upon conversion of convertible securities.

In periods of net loss, all potentially dilutive common shares are excluded from the computation of the diluted net loss per share for those periods, as the effect would be anti-dilutive.

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The following table sets forth the computation of basic and diluted net income (loss) per share for the periods shown:


		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022

Net (loss) income	$	(24,103)	$	(60,391)	$	(43,202)	$	130,558

Impact of conversion of dilutive securities		—		—		—		(188,563)

Dilutive Net loss	$	(24,103)	$	(60,391)	$	(43,202)	$	(58,005)

Net (loss) income per share
Basic	$	(0.04)	$	(0.13)	$	(0.08)	$	0.28
Diluted	$	(0.04)	$	(0.13)	$	(0.08)	$	(0.10)

Basic weighted average shares outstanding		592,452,262		472,475,747		552,703,546		464,244,736
Dilutive potential common stock outstanding
Stock-based awards		—		—		—		6,499,671
2023 Notes		—		—		—		4,617,646
2025 Notes		—		—		—		39,211,358
PHC Notes		—		—		—		67,625,174
Energy Capital Option		—		—		—		23,335,635
Warrants		—		—		—		2,811,493
Diluted weighted average shares outstanding		592,452,262		472,475,747		552,703,546		608,345,713

Outstanding anti-dilutive securities not included in the diluted net income (loss) per share calculations were as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Stock-based awards	31,953,024	24,940,972	31,953,024	10,426,560
2023 Notes	—	4,617,646	—	—
2025 Notes	15,622,814	39,211,358	15,622,814	—
PHC Notes	—	68,322,952	—	—
PHC Option	—	31,512,605	—	22,717,076
Energy Capital Option	—	30,372,058	—	—
Energy Capital Preferred Shares	30,372,058	—	30,372,058	—
Warrants	1,260,183	3,177,821	1,260,183	427,821
Total anti-dilutive shares outstanding	79,208,079	202,155,412	79,208,079	33,571,457

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6.	Marketable Securities

Marketable securities available for sale, were as follows (in thousands):


	September 30, 2023
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Commercial Paper	$	26,281	$	—	$	—	$	26,281
Corporate debt securities		7,944		—		(24)		7,920
Asset backed securities		—		—		—		—
Government and agency securities		35,482		—		(35)		35,447
Total	$	69,707	$	—	$	(59)	$	69,648


	December 31, 2022
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Commercial Paper	$	41,503	$	—	$	—	$	41,503
Corporate debt securities		32,331		—		(189)		32,142
Asset backed securities		8,363		—		(103)		8,260
Government and agency securities		38,956		—		(386)		38,570
Total	$	121,153	$	—	$	(678)	$	120,475

The following are the scheduled maturities as of September 30, 2023 (in thousands):


	Net		Fair
	Carrying Amount		Value
2023 (remaining three months)	$	36,156	$	39,231
2024		33,551		30,417
Total	$	69,707	$	69,648

The Company periodically reviews its portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For debt securities where the fair value of the investment is less than the amortized cost basis, the Company assesses at the individual security level, for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment. Unrealized losses on available-for-sale securities at September 30, 2023 were not significant and were primarily due to changes in interest rates and not due to increased credit risk associated with specific securities. The Company does not intend to sell these impaired investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

7. Inventory, net

Inventory, net of reserves, consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
Finished goods	$	2,440	$	1,697
Work-in-process		5,981		4,057
Raw materials		1,305		1,552
Total	$	9,726	$	7,306

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The Company charged less than $0.1 million to cost of sales for each of the three and nine months ended September 30, 2023 and $0.5 million to cost of sales for each of the three and nine months ended September 30, 2022 to reduce the value of inventory for items that are potentially obsolete due to expiry, in excess of product demand, or to adjust costs to their net realizable value.

8. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
Contract manufacturing⁽¹⁾	$	4,577	$	4,097
Tax credits receivable⁽²⁾		1,793		—
Insurance		340		1,243
Clinical and Preclinical		180		924
Interest receivable		218		336
Rent and utilities		151		132
Research and development		135		67
Accounting and Audit		117		270
Other		46		359
Total prepaid expenses and other current assets	$	7,557	$	7,428

(1)

Includes deposits to contract manufacturers for manufacturing process.

(2)

Refundable employee retention credits, enacted under the CARES Act.

9.	Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
Research and development	$	4,168	$	3,502
Professional and administrative services		3,947		1,053
Compensation and benefits		3,569		4,699
Contract manufacturing		1,396		2,480
Product warranty and replacement obligations		517		781
Operating lease		413		725
Interest on notes payable		381		149
Sales and marketing services		242		2,050
Other		—		14
Total accrued expenses and other current liabilities	$	14,633	$	15,453

10.

Leases

The Company leases approximately 33,000 square feet of research and office space for its corporate headquarters under a non-cancelable operating lease. In May 2023, the Company amended our lease, extending the lease term through May 31, 2033, and obtained a tenant improvement allowance of $1.3 million. The Company accounted for the amendment as a lease modification and remeasured the ROU asset and lease liability as of the amendment date, which resulted in an increase of $2.5 million to the ROU asset, and an increase of $3.8 million to the lease liability. The Company has one option to extend the term for an additional period of five years beginning on June 1, 2033. The rent expense is recognized on a straight-line basis through the end of the lease term, excluding option renewals. The difference between the straight-line rent amounts and amounts payable under the lease is recorded as deferred rent.

Operating lease expense for the nine months ended September 30, 2023 and 2022 was $0.6 million and $0.5 million, respectively.

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The following table summarizes the lease assets and liabilities as of September 30, 2023 and December 31, 2022 (in thousands):


				September 30,		December 31,
Operating Lease Assets and Liabilities	Balance Sheet Classification		2023		2022
Assets
Operating lease ROU assets		Deposits and other assets	$	5,261	$	3,032
Tenant improvement allowance receivable		Deposits and other assets		1,312		—
Liabilities
Current operating lease liabilities		Accrued expenses and other current liabilities	$	413	$	725
Non-current operating lease liabilities		Other non-current liabilities		6,312		2,689
Total operating lease liabilities			$	6,725	$	3,414

The following table summarizes the maturity of undiscounted payments due under operating lease liabilities and the present value of those liabilities as of September 30, 2023 (in thousands):


2023 (remaining 3 months)	$	283
2024		912
2025		939
2026		967
2027		996
Thereafter		5,934
Total		10,031
Less: Present value adjustment		(3,306)
Present value of lease liabilities	$	6,725

The following table summarizes the weighted-average lease term and weighted-average discount rate as of September 30, 2023:


Remaining lease term (years)	2023
Operating leases	9.6
Discount rate
Operating leases	8.5	%

11.

Product Warranty Obligations

The Company provides a warranty of one year on its smart transmitters. Additionally, the Company may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs are recorded at the time of shipment as a charge to cost of sales in the consolidated statement of operations and are developed by analyzing product performance data and historical replacement experience, including comparing actual replacements to revenue.

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At each September 30, 2023 and December 31, 2022, the warranty reserve was $0.5 million and $0.8 million, respectively. The following table provides a reconciliation of the change in estimated warranty liabilities for the nine months ended September 30, 2023, and for the twelve months ended December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Balance at beginning of the period	$	781	$	723
Provision for warranties during the period		136		166
Settlements made during the period		(400)		(108)
Balance at end of the period	$	517	$	781

12.

Notes Payable, Preferred Stock and Stock Purchase Warrants

Term Loans

Loan and Security Agreement

On September 8, 2023 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. and its managed fund (collectively, the “Lenders"), pursuant to which the Lenders have agreed to make available to Senseonics up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to Senseonics upon Senseonics’ satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on September 1, 2027 (the “Maturity Date”).

The loans under the Loan Agreement bear interest at an annual rate equal to the greater of (i) the prime rate as reported in The Wall Street Journal plus 1.40% and (ii) 9.90%. Borrowings under the Loan Agreement are repayable in monthly interest-only payments through (a) initially, September 1, 2026 and (b) if the Company satisfies the Interest Only Extension Conditions (as defined in the Loan Agreement), the Maturity Date. After the interest-only payment period, borrowings under the Loan Agreement are repayable in equal monthly payments of principal and accrued interest until the Maturity Date.

At the Company’s option, the Company may prepay all or any portion of the outstanding borrowings under the Loan Agreement, subject to a prepayment fee equal to (a) 3.0% of the principal amount being prepaid if the prepayment occurs within one year of the Effective Date, 2.0% of the principal amount being prepaid if the prepayment occurs during the second year following the Effective Date, and 1.00% of the principal amount being prepaid if the prepayment occurs more than two years after the Effective Date and prior to the Maturity Date. In addition, the Company paid a $375,000 facility fee upon closing and will pay additional facility charges in connection with any borrowing of the Tranche 2 Loan or Tranche 3 Loan, in each case in the amount of 0.50% of the amount of such tranche of loans. The Loan Agreement also provides for an end of term fee in an amount equal to 6.95% of the aggregate principal amount of loan advances actually made under the Loan Agreement, which fee is due and payable on the earliest to occur of (i) the Maturity Date, (ii) the date the Company prepays the outstanding loans in full, and (iii) the date that the secured obligations become due and payable. The end of term fee is accreted to interest expense over the term of the loans.

The Company’s obligations under the Loan Agreement are secured, by a first-priority security interest in substantially all of its assets. The Loan Agreement contains a minimum cash covenant that requires the Company to hold unrestricted cash equal to 30% of the outstanding loan amount under the Loan Agreement. The Loan Agreement also contains a performance covenant, commencing on July 1, 2024, that requires the Company to generate net product revenue on a trailing six-month basis in excess of specified percentage for applicable measuring periods, subject to certain exceptions.

In addition, the Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers,

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corporate changes, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions. The Loan Agreement also contains events of default including, among other things, payment defaults, breach of covenants, material adverse effect, breach of representations and warranties, cross-default to material indebtedness, bankruptcy-related defaults, judgment defaults, revocation of certain government approvals, and the occurrence of certain adverse events. Following an event of default and any applicable cure period, a default interest rate equal to the then-applicable interest rate plus 4.0% may be applied to the outstanding amount, and the Lenders will have the right to accelerate all amounts outstanding under the Loan Agreement, in addition to other remedies available to them as secured creditors of the Company.

In addition, in connection with the issuance of the Tranche 1 Loan, the Company issued warrants to the Lenders (collectively, the “Warrants”) to acquire an aggregate of 832,362 shares of the Company’s common stock at an exercise price of $0.6007 per share (the “Warrant Shares”). The Warrants may be exercised through the earlier of (i) the seventh anniversary of the Effective Date and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the Warrants. The number of Warrant Shares for which the Warrants are exercisable and the associated exercise price are subject to certain customary proportional adjustments for fundamental events, including stock splits and reverse stock splits, as set forth in the Warrants. The proceeds from the Loan Agreement were allocated between the Tranche 1 Loan and the Warrants based on their respective fair value of $25.0 million and $0.4 million, and the amount allocated to the Warrants was recorded in equity resulting in a debt discount to the Tranche 1 Loan that is being amortized as additional interest expense over the term of the loan agreement using the effective interest method.

In connection with Loan Agreement, the Company incurred $1.1 million in debt issuance costs and debt discounts which are netted against the principal balance of the initial term loan and amortized as interest expense over the term of the initial term loan using an effective interest rate of 13.01%.

Pursuant to the Loan Agreement, the Company also agreed to issue additional seven year term warrants upon the funding of the Tranche 2 and Tranche 3 Loans, which warrants would be exercisable for an aggregate number of shares equal to 2.0% of the funded loan amount divided by the exercise price equal to the three-day volume-weighted average price at the time of each advance.

PPP Loan

On April 22, 2020, the Company received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) was evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).

Under the terms of the PPP Note and the PPP Loan, interest accrued on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note was two years. In April 2022, the Company repaid the outstanding principal and accrued interest in full.

Convertible Preferred Stock and Warrants

Equity Line Agreement

On November 9, 2020, the Company entered into the Equity Line Agreement with Energy Capital, which provided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital was committed to purchase up to an aggregate of $12.0 million of shares of the Company’s Series B Preferred Stock at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, the Company had the right, at sole discretion, to present Energy Capital with a Regular Purchase Notice directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at the Purchase Price equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share,

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subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provided that the Company shall not affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there have been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock.

The Company accounted for the Equity Line Agreement as a put/call option (the “Energy Capital Option”). This put/call option was classified as a liability in accordance with ASC 480, Distinguishing liabilities from equity, on the Company’s balance sheet and was recorded at the estimated fair value of $4.2 million upon issuance. The put/call option was required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense). In connection with the execution of the Equity Line Agreement, the Company incurred $7.6 million in debt issuance costs in fiscal year 2020. The fair value of the Energy Capital Option as of December 31, 2021 was $69.4 million. The Company adjusted the Energy Capital Option to its fair value of $25.7 million on the exercise date, recognizing a fair value adjustment gain of $43.7 million.

Concurrently with entry into the Equity Line Agreement, the Company issued a warrant to Energy Capital, exercisable beginning on May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share (the “Energy Capital Warrant”). The Energy Capital Warrant was exercised on a net basis in February 2022 and Energy Capital received 8,917,535 shares of common stock upon the net exercise of the Energy Capital Warrants.

Securities Purchase Agreement

On March 13, 2023, pursuant to the Securities Purchase Agreement with PHC, the Company issued and sold to PHC in a private placement a warrant (the “Purchase Warrant”) to purchase 15,425,750 shares of common stock (the “Purchase Warrant Shares”). The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share. On the private placement closing date, the Company received aggregate gross proceeds of $15.0 million, before deducting private placement expenses payable by the Company. All or any part of the Purchase Warrant shall is exercisable by the holder at any time and from time to time.

The Company determined that the Purchase Warrant shall be classified as equity in accordance with ASC Topic 480, Distinguishing Liabilities from Equity and ASC Topic 815. At issuance, the Company recorded the estimated fair value of the Purchase Warrant in the amount of $14.3 million as additional paid-in-capital in the Company’s consolidated balance sheets.

Because PHC was an existing stockholder of the Company at the time of the transaction, the $0.7 million excess of the purchase price over the fair value of the Purchase Warrant was recognized as an equity transaction and recorded as a capital contribution made by PHC to the Company as additional paid-in-capital in the Company’s consolidated balance sheets.

Additionally, on March 13, 2023, the Company entered into the Exchange Agreement with PHC, pursuant to which PHC agreed to exchange (the “PHC Exchange”) its $35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for a warrant (the “PHC Exchange Warrant”) to purchase up to 68,525,311 shares of common stock (the “PHC Exchange Warrant Shares”). The PHC Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per PHC Exchange Warrant Share. All or any part of the PHC Exchange Warrant is exercisable by the holder at any time and from time to time. The number of PHC Exchange Warrant Shares represents the number of shares of common stock previously issuable upon conversion of the PHC Notes, in accordance with the original terms of the notes, including a number of shares in respect of accrued and unpaid interest through the closing date, plus additional shares with a value of $675,000 reflecting a portion of the future interest payments forgone by PHC. On March 31, 2023 (6:00 am Japan Standard Time on April 1, 2023), the PHC Exchange

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was consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.

The Company determined that the PHC Exchange Warrant shall be classified as equity in accordance with ASC 480 and ASC 815. At March 31, 2023, the Company recorded the estimated fair value of the PHC Exchange Warrant in the amount of $48.6 million as additional paid-in-capital in the Company’s consolidated balance sheets.

As of September 30, 2023, the Purchase Warrant and the PHC Exchange Warrant remained unexercised and outstanding. As they are prefunded warrants, the Company included the entirety of the warrant shares as weighted average outstanding shares in the calculation of its basic earnings per share.

Convertible Notes

PHC Notes

On August 9, 2020, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PHC, as the purchaser (together with the other purchasers from time-to-time party thereto, the “Note Purchasers”) and Alter Domus (US) LLC, as collateral agent. Pursuant to the Note Purchase Agreement, the Company borrowed $35.0 million in aggregate principal through the issuance and sale of the PHC Notes on August 14, 2020 (the “Closing Date”). The Company also issued 2,941,176 shares of its common stock, $0.001 par value per share to PHC as a financing fee (the “Financing Fee Shares”) on the Closing Date. The Financing Fee Shares are accounted for as debt discount in the amount of $1.5 million.

The PHC Notes were senior secured obligations of the Company and were guaranteed on a senior secured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at the Company’s option, payment in kind. The interest rate decreased to 8.0% in April 2022 as a result of the Company having obtained FDA approval for the 180-day Eversense E3 system for marketing in the United States. The maturity date for the PHC Notes was October 31, 2024 (the “Maturity Date”). The obligations under the PHC Notes were secured by substantially all of the Company’s and its subsidiary’s assets.

The Note Purchasers were entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the PHC Notes (including any interest added thereto as payment in kind), equivalent to a conversion price of approximately $0.53 per share, subject to specified anti-dilution adjustments, including adjustments for the Company’s issuance of equity securities on or prior to April 30, 2022 below the conversion price. In addition, following a notice of redemption or certain corporate events that occurred prior to the maturity date, the Company would have been required, in certain circumstances, to increase the conversion rate for a holder electing to convert its PHC Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company would have been required to pay cash in lieu of delivering make whole shares unless the Company obtained stockholder approval to issue such shares.

Subject to specified conditions, on or after October 31, 2022, the PHC Notes would have become redeemable by the Company if the closing sale price of the common stock were to exceed 275% of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes would have become redeemable by the Company upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which had been added to such amount), plus any accrued but unpaid interest, plus a call premium of 130% if redeemed at least six months prior to the Maturity Date or a call premium of 125% if redeemed within six months of the Maturity Date.

The Note Purchase Agreement contained customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions were subject to certain minimum thresholds and exceptions. The

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Note Purchase Agreement also contained customary events of default, after which the PHC Notes would have become due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross defaults to certain other agreements, judgments against the Company, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.

The Company also had the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022 (the “PHC Option”), which was initially contingent upon obtaining FDA approval for the 180-day Eversense product for marketing in the United States before such date, and which approval the Company successfully obtained in February 2022. The PHC option was not exercised and expired on December 31, 2022 and the Company recognized a loss on extinguishment of $0.1 million.

The Note Purchase Agreement also contained several provisions requiring bifurcation as a separate derivative liability including an embedded conversion feature, mandatory prepayment upon event of default that constitutes a breach of the minimum revenue financial covenant, optional redemption upon an event of default, change in interest rate after PMA approval and default interest upon an event of default. On the date of issuance, the Company recorded the fair value of the embedded features in the amount of $25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC 815. The derivative was adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

In connection with the issuance of the PHC Notes, the Company incurred $2.9 million in debt issuance costs and debt discounts. The associated debt issuance costs were recorded as a contra liability in the amount of $1.4 million and were deferred and amortized as additional interest expense over the term of the notes at an effective interest rate of 29.19%. There were no conversions of the PHC Notes prior to the exchange of the PHC Notes for the PHC Exchange Warrant described above.

As described above, the PHC Exchange Agreement with PHC was consummated on March 31, 2023, whereby PHC exchanged the PHC Notes in $35.0 million principal amount and all accrued and unpaid interest for the PHC Exchange Warrant. On March 31, 2023, the Company was released from its obligation under the PHC Notes.

Upon execution of the PHC Exchange Agreement, the exercise of the original conversion feature of the PHC Notes became remote. Accordingly, the Company remeasured the embedded derivative to its fair value of $0. The Company recognized a change in fair value of the embedded derivative of $44.2 million in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

The Company accounted for the PHC Exchange as an extinguishment of the PHC Notes, and thus, it derecognized the PHC Notes in its consolidated balance sheets and recognized a loss of $25.4 million as the difference between the carrying value plus accrued interest of the PHC Notes of $23.2 million and the $48.6 million fair value of the PHC Exchange Warrant as an extinguishment loss in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. As a result of the PHC Exchange, the Company recognized a total net gain on exchange of the PHC notes of $18.8 million representing the gain on change in the fair value of the PHC Notes conversion feature recognized as an embedded derivative and the loss on extinguishment of the PHC Notes in exchange for the PHC Exchange Warrant.

2025 Notes

In July 2019, the Company issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. The 2025 Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at an initial conversion rate of 757.5758 shares per $1,000 principal amount of the 2025 Notes (equivalent to an initial conversion price of approximately $1.32 per share).

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The 2025 Notes also contained an embedded conversion option requiring bifurcation as a separate derivative liability, along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

On April 24, 2020, $24.0 million aggregate principal of the Company’s outstanding 2025 Notes held by Highbridge Capital Management, LLC (“Highbridge”) were exchanged for (i) $15.7 million of Second Lien Notes (the “Second Lien Notes”), (ii) 11,026,086 shares of common stock, (iii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $0.66 per share, and (iv) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged. This transaction modified the original 2025 Notes outstanding with Highbridge and resulted in $13.2 million of deferred issuance fees and debt discounts associated with the exchanged 2025 Notes being transferred as a discount to the Second Lien Notes.

In January 2021, there were conversions of $6.5 million of outstanding principal amount of the 2025 notes for 4,924,998 shares of common stock. Accordingly, $3.2 million of allocated deferred issuance costs and debt discounts were recognized as a loss on extinguishment of debt.

On August 10, 2023, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (the “Noteholders”) of the Company’s currently outstanding 2025 Notes. Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company (the “Exchanges”) up to $30.8 million in aggregate principal amount of the 2025 Notes (the “Exchanged Notes”) for a combination of $7.5 million of cash and newly issued shares of common stock (the “Exchange Shares”). The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.

The Company accounted for the Exchanges as an extinguishment of the Exchanged Notes and the associated embedded derivative and recognized a loss of $4.6 million in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The extinguishment loss represents the difference between (i) the carrying value of the Exchanged Notes (inclusive of the fair value of the embedded derivative) and (ii) the sum of $7.5 million cash payment, the fair value of the Exchanged Shares, and transaction costs incurred in the Exchange.

Following the Exchanges, approximately $20.4 million aggregate principal amount of the 2025 Notes remain outstanding. The remaining unamortized debt discount and debt issuance costs are amortized as interest expense over the term of the loan at an effective interest rate of 15.54%. The fair value of the derivative at September 30, 2023 and December 31, 2022 was $0.2 million and $4.7 million, respectively.

2023 Notes

In the first quarter of 2018, the Company issued $53.0 million in aggregate principal amount of senior convertible notes due February 1, 2023 (the “2023 Notes”). In July 2019, the Company used the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the outstanding 2023 Notes. Each $1,000 of principal of the 2023 Notes is initially convertible into 294.1176 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $3.40 per share, subject to adjustment upon the occurrence of specified events. Holders may convert at any time prior to February 1, 2023. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. If specific corporate events occur prior to the maturity date, the Company will increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances. Additionally, if a fundamental change occurs prior to the

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maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest.

The Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and in January 2018 recorded the embedded features as a debt discount and derivative liability in the Company’s consolidated balance sheets at its initial fair value of $17.3 million. Additionally, the Company incurred transaction costs of $2.2 million. The debt discount and transaction costs are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30%. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. On January 31, 2023, the Company repaid the outstanding principal and accrued interest in full. The derivative was unexercised upon maturity and the fair value in the amount of $0.02 million was recognized as an extinguishment gain in the caption “Other income (expense)” in Company’s consolidated statement of operations and comprehensive loss.

The following carrying amounts were outstanding under the Company’s notes payable as of September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023
	Principal ($)	Debt (Discount) Premium ($)⁽¹⁾	Issuance Costs ($)	Carrying Amount ($)
2025 Notes	20,399	(3,732)	(62)	16,605
Loan and Security Agreement	25,000	(880)	(240)	23,880

	December 31, 2022
	Principal ($)	Debt (Discount) Premium ($)⁽¹⁾	Issuance Costs ($)	Carrying Amount ($)
2023 Notes	15,700	(121)	-	15,579
2025 Notes	51,199	(15,029)	(252)	35,918
PHC Notes	35,000	(13,698)	(837)	20,465

(1)

Includes accretion of end of term fees payable at maturity

Interest expense related to the notes payable for the nine months ended September 30, 2023 and 2022 was as follows (dollars in thousands):


	Nine Months Ended September 30, 2023
	Interest Rate	Interest ($)	Debt Discount and Fees ($)⁽¹⁾	Issuance Costs ($)	Total Interest Expense ($)
2023 Notes	5.25%	69	120	-	189
2025 Notes	5.25%	1,881	4,808	81	6,770
PHC Notes	8.00%	700	1,442	88	2,230
Loan and Security Agreement	9.90%	158	38	3	199
Total		2,808	6,408	172	9,388


	Nine Months Ended September 30, 2022
	Interest Rate	Interest ($)	Debt Discount and Fees ($)⁽¹⁾	Issuance Costs ($)	Total Interest Expense ($)
2023 Notes	5.25%	618	1,022	-	1,640
2025 Notes	5.25%	2,002	4,035	68	6,104
PHC Notes	8.00%	2,319	3,519	215	6,053
PPP Loan	1.00%	6	-	-	6
Total		4,945	8,576	283	13,803

(1)

Includes accretion of end of term fees payable at maturity

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The following are the scheduled maturities of the Company’s notes payable (including end of term fees) as of September 30, 2023 (in thousands):


2023 (remaining three months)	$	—
2024		—
2025		20,399
2026		7,397
Thereafter		19,341
Total	$	47,137

13.

Stockholders’ Equity (Deficit)

In November 2021, the Company entered into the 2021 Sales Agreement with Jefferies, under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as the sales agent in an “at the market” offering. Jefferies received commissions up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the nine months ended September 30, 2023, the Company received $7.4 million in net proceeds from the sale of 9,944,663 shares of its common stock under the 2021 Sales Agreement. In 2022, the Company received $34.4 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement. On August 7, 2023, the Company and Jefferies mutually agreed to terminate the 2021 Sales Agreement, effective as of August 7, 2023. At the time of termination, approximately $106.6 million remained available for issuance pursuant to the 2021 Sales Agreement.

14. Stock-Based Compensation

2015 Plan

In December 2015, the Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”), under which incentive stock options, non-qualified stock options and restricted stock units may be granted to the Company’s employees and certain other persons, such as officers and directors, in accordance with the 2015 Plan provisions. In February 2016, the Company’s Board of Directors adopted, and the Company’s stockholders approved, an Amended and Restated 2015 Equity Incentive Plan (the “Amended and Restated 2015 Plan”), which became effective on February 20, 2016. The Company’s Board of Directors may terminate the Amended and Restated 2015 Plan at any time. Options granted under the Amended and Restated 2015 Plan expire ten years after the date of grant.

Pursuant to the Amended and Restated 2015 Plan, the number of shares of the Company’s common stock reserved for issuance automatically increases on January 1 of each year, ending on January 1, 2026, by 3.5% of the total number of shares of its common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by its Board of Directors. As of September 30, 2023, 28,974,957 shares remained available for grant under the Amended and Restated 2015 Plan.

Inducement Plan

On May 30, 2019, the Company adopted the Senseonics Holdings, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 1,800,000 shares of the Company’s common stock for issuance. The

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only persons eligible to receive grants of awards under the Inducement Plan are individuals who satisfy the standards for inducement grants in accordance with NYSE American Company Guide Section 711(a), including individuals who were not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company. An “Award” is any right to receive the Company’s common stock pursuant to the Inducement Plan, consisting of non-statutory options, restricted stock unit awards and other equity incentive awards. As of September 30, 2023, 172,256 shares remained available for grant under the Inducement Plan.

Commercial Equity Plan

On January 30, 2023, the Company adopted the Senseonics Holdings, Inc. 2023 Commercial Equity Plan (the “Commercial Equity Plan”), pursuant to which the Company reserved 10,000,000 shares of common stock for issuance. Eligible recipients under the plan are non-employees of Senseonics, including employees of our global commercial partner, Ascensia, who assist with the commercialization of our products. An “Award” is any right to receive the Company’s common stock pursuant to the Commercial Equity Plan, consisting of non-statutory options and restricted stock unit awards. The Company has issued 2,937,500 shares under the Commercial Equity Plan since adoption. As of September 30, 2023, 7,062,500 shares remained available for grant under the Commercial Equity Plan.

2016 Employee Stock Purchase Plan

In February 2016, the Company adopted the 2016 Employee Stock Purchase Plan, (the “2016 ESPP”). The 2016 ESPP became effective on March 17, 2016. The maximum number of shares of common stock that may be issued under the 2016 ESPP was initially 800,000 shares and automatically increases on January 1 of each year, ending on and including January 1, 2026, by 1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; provided, however, the Board of Directors may act prior to the first day of any calendar year to provide that there will be no January 1 increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock. As of September 30, 2023, there were 17,624,582 shares of common stock available for issuance under the 2016 ESPP. For the nine months ended September 30, 2023, there were purchases of 222,312 shares of common stock pursuant to the 2016 ESPP.

The 2016 ESPP permits participants to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their earnings. Unless otherwise determined by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of common stock on the first day of an offering or on the date of purchase. Participants may end their participation at any time and deductions not yet used in a purchase are refundable upon employment termination. The Company initiated its first 2016 ESPP offering period on August 1, 2019 and new offering periods occur every six months thereafter, each consisting of two purchase periods of six months in duration ending on or about January 31^st and July 31^st of each year. A participant may only be in one offering at a time. On February 1, 2020, there were 566,573 shares purchased in connection with the offering period. The 2016 ESPP contains an offering reset provision whereby if the fair market value of a share on offering date of an ongoing offering is less than or equal to the fair market value of a share on a new offering date, the ongoing offering will terminate immediately after the purchase date and rolls over to the new offering.

The 2016 ESPP is considered compensatory for financial reporting purposes.

1997 Plan

On May 8, 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”), under which incentive stock options, non-qualified stock options, and restricted stock awards may be granted to the Company’s employees and certain other persons in accordance with the 1997 Plan provisions. Approximately 1,026,870 shares of the Company’s common stock underlying options have vested under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the Company no longer grants any awards under the 1997 Plan.

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15.

Fair Value Measurements

The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023
	Total		Level 1		Level 2		Level 3
Assets
Money market funds⁽¹⁾	$	52,696	$	52,696		—		—
Commercial paper		26,281		—		26,281		—
Corporate debt securities		7,920		—		7,920		—
Asset backed securities		—		—		—		—
Government and agency securities		35,447		35,447		—		—
Liabilities
Embedded features of the 2025 Notes	$	245	$	—		—		245


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Assets
Money market funds⁽¹⁾	$	34,658	$	34,658		—		—
Commercial paper		41,503		—		41,503		—
Corporate debt securities		32,142		—		32,142		—
Asset backed securities		8,260		—		8,260		—
Government and agency securities		38,570		31,627		6,943		—
Liabilities
Embedded features of the 2023 Notes	$	20	$	—		20		—
Embedded features of the PHC Notes		44,191		—		—		44,191
Embedded features of the 2025 Notes		7,859		—		—		7,859

(1)Classified as cash and cash equivalents due to their short-term maturity

The following table provides a reconciliation of the beginning and ending net balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):



	Level 3
	Instruments
December 31, 2022	$	52,050
Conversion of financial instruments		(1,109)
Gain on change in fair value of embedded features of the PHC Notes		(44,191)
Gain on change in fair value of embedded features of the 2025 Notes		(6,505)
September 30, 2023	$	245

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The recurring Level 3 fair value measurements of the embedded features of the notes payable and preferred stock, include the following significant unobservable inputs at September 30, 2023:



		As of September 30, 2023
		2025 Notes
Unobservable Inputs	`	Assumptions
Stock price volatility		45.0	%
Probabilities of conversion provisions		5.0 - 85.0	%
Credit spread		9.5	%


		As of December 31, 2022
		2025 Notes		PHC Notes
Unobservable Inputs		Assumptions		Assumptions
Stock price volatility		110.0	%	99.0	%
Probabilities of conversion provisions		5.0 - 10.0	%	5.0 - 10.0	%
Credit spread		13.96	%	13.96	%
Recovery rate		-1.56	%	-5.51	%

16.

Income Taxes

The Company has not recorded any tax provision or benefit for the nine months ended September 30, 2023 or September 30, 2022. The Company has provided a valuation allowance for the full amount of its net deferred tax assets since realization of any future benefit from deductible temporary differences, NOL carryforwards and research and development credits is not more-likely-than-not to be realized at September 30, 2023 and December 31, 2022.

17. Related Party Transactions

PHC has a noncontrolling ownership interest in the Company. In addition, PHC has representation on the Company’s board of directors. The Company entered into a financing agreement with PHC on August 9, 2020 and entered into an exchange agreement with PHC during 2023 (see Note 12 for further discussion). Ascensia, through the ownership interests of its parent company, PHC, is a related party. Revenue from Ascensia during the nine months ended September 30, 2023 and 2022 was $13.2 million and $10.3 million, respectively. We also purchase certain medical supplies from Ascensia for our clinical trials. We paid Ascensia $0.6 million and $0.2 million during the nine months ended September 30, 2023 and 2022, respectively under this arrangement.

The amount due from Ascensia as of September 30, 2023 and December 31, 2022 was $2.7 million and $2.3 million, respectively. The amount due to Ascensia as of September 30, 2023 and December 31, 2022 was $0.5 million and $0.9 million, respectively.

18. Subsequent Events

The Company has evaluated all subsequent events through the filing date of this Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of September 30, 2023, and events which occurred subsequently but were not recognized in the financial statements. There were no subsequent events that required recognition or disclosure.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks, uncertainties, and assumptions, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those described below and elsewhere in this Quarterly Report on Form 10-Q, and in our Annual Report on Form 10-K, particularly in Part I – Item 1A, “Risk Factors,” and our other filings with the Securities and Exchange Commission. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2022, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2023. Unless otherwise indicated or the context otherwise requires, all references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Senseonics Holdings, Inc. and its subsidiary.

Overview

We are a medical technology company focused on the development and manufacturing of glucose monitoring products designed to transform lives in the global diabetes community with differentiated, long-term implantable glucose management technology. Our implantable CGM (“Eversense”), including 90-day Eversense, Eversense XL and Eversense E3 CGM system versions are designed to continually and accurately measure glucose levels in people with diabetes via an under-the-skin sensor, a removable and rechargeable smart transmitter, and a convenient app for real-time diabetes monitoring and management for a period of up to six months in the case of Eversense XL and Eversense E3, as compared to seven to 14 days for non-implantable CGM systems. We affixed the CE mark to the original 90-day Eversense CGM system in June 2016, which marked the first certification for the product to be sold within the European Economic Area (being the European Union plus Norway, Iceland, and Liechtenstein) (“EEA”). Subsequently, we affixed the CE mark to the extended life Eversense XL CGM system in September 2017 to be sold in select markets in Europe and the Middle East. In June 2022, we affixed the CE mark to the extended life Eversense E3 CGM system and Ascensia began commercialization in select markets in Europe during the third quarter of 2022. In June 2018, the FDA, approved the 90-day Eversense CGM system for distribution throughout the United States. In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the 90-day Eversense system. With this approval and the availability of a new app in December 2019, the Eversense system can now be used as a therapeutic CGM in the United States to replace fingerstick blood glucose measurement to make treatment decisions, including insulin dosing. In February 2022, the 180-day extended life Eversense E3 CGM system was approved by the FDA and Ascensia began commercializing Eversense E3 in the United States in the second quarter of 2022.

Our net revenues are derived from sales of the Eversense system which is sold in two separate kits: the disposable Eversense Sensor Pack which includes the sensor, insertion tool, and adhesive patches, and the durable Eversense Smart Transmitter Pack which includes the transmitter and charger.

We sell directly to our network of distributors and strategic fulfillment partners, who provide the Eversense system to healthcare providers and patients through a prescribed request and invoice insurance payors for reimbursement. Sales of the Eversense system are widely dependent on the ability of patients to obtain coverage and

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adequate reimbursement from third-party payors or government agencies. We leverage and target regions where we have coverage decisions for patient device use and provider insertion and removal procedure payment. We have reached approximately 300 million covered lives in the United States through positive insurance payor coverage decisions. In June 2023, we received positive payor coverage decision from UnitedHealthcare, the largest healthcare insurance company in the United States that effective July 1, 2023, Eversense E3 CGM system would be covered. On August 3, 2020, the Center for Medicare and Medicaid Services (“CMS”) released its Calendar Year 2021 Medicare Physician Fee Schedule Proposed Rule that announces proposed policy changes for Medicare payments, including the proposed establishment of national payment amounts for the three CPT© Category III codes describing the insertion (CPT 0446T), removal (0447T), and removal and insertion (0048T) of an implantable interstitial glucose sensor, which describes our Eversense CGM systems, as a medical benefit, rather than as part of the Durable Medical Equipment channel that includes other CGMs. In December 2021, CMS released its Calendar Year 2022 Medicare Physician Fee Schedule that updated global payments for the device cost and procedure fees. In July 2022, CMS provided temporary G-codes to enable immediate access to Eversense E3 for all eligible Medicare beneficiaries. In November 2022, CMS released its Calendar Year 2023 Medicare Physician Fee Schedule Proposed Rule that updates the payment amounts for the three CPT© Category III codes to account for the longer 6-month sensor.

In February 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor. This sub-set of 30 participants was left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Information gathered from this sub-set and additional development efforts provided us the confidence to start the Pivotal study for the Eversense 365-day System. The ENHANCE pivotal study for the Eversense 365-day system completed enrollment in the third quarter of 2022 and the last patient of the adult cohort completed the study in the third quarter of 2023. We expect to have data by the end of 2023, which is intended to support an FDA submission for a new product in early 2024.

We are in the early commercialization stages of the Eversense brand and are focused on driving awareness of our CGM system amongst intensively managed patients and their healthcare providers. In both the United States and our overseas markets, we have entered into strategic partnerships and distribution agreements that allow third party collaborators with direct sales forces and established distribution systems to market and promote Senseonics CGM systems, including 90-day Eversense, Eversense XL, Eversense E3 and future generation products.

United States Development and Commercialization of Eversense

In 2016, we completed our PRECISE II pivotal clinical trial in the United States. This trial, which was fully enrolled with 90 subjects, was conducted at eight sites in the United States. In the trial, we measured the accuracy of Eversense measurements through 90 days after insertion. We also assessed safety through 90 days after insertion or through sensor removal. In the trial, we observed a mean absolute relative difference (“MARD”), of 8.5% utilizing two calibration points for Eversense across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period. Based on the data from this trial, in October 2016 we submitted a pre-market approval (“PMA”) application to the FDA to market Eversense in the United States for 90-day use. On June 21, 2018, we received PMA approval from the FDA for the Eversense system. In July 2018, we began distributing the 90-day Eversense system directly in the United States through our own direct sales and marketing organization. We have received Category III CPT codes for the insertion and removal of the Eversense sensor.

In December 2018, we initiated the PROMISE pivotal clinical trial to evaluate the safety and accuracy of Eversense for a period of up to six months in the United States and in September 30, 2019, we completed enrollment of the PROMISE trial. In the trial, we observed performance matching that of the then current Eversense 90-day product available in the United States, with a MARD of 8.5%. This result was achieved with reduced calibration, down to one per day, while also doubling the sensor life to six months. Following the results of the PROMISE trial, on September 30, 2020, a PMA supplement application to extend the wearable life of the Eversense CGM System to six months was submitted to the FDA. In February 2022, the extended life Eversense E3 CGM system was approved by the FDA.

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In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system and launched with an updated app in December 2019. With this approval, the Eversense system can be used as a therapeutic CGM to replace fingerstick blood glucose measurement for treatment decisions, including insulin dosing.

On February 26, 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor. This sub-set of 30 participants were left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Information gathered from this sub-set and additional development efforts provided us the confidence to start the Pivotal study for the Eversense 365 System.

In April 2020, we announced that we received an extension to our CE Certificate of Conformity in the EEA such that the Eversense XL is no longer contraindicated for MRI, which means the sensor does not need to be removed from under the skin during MRI scanning. We had previously obtained this indication for Eversense in the United States in 2019. This MRI approval is a first for the CGM category, as all other sensors are required to be removed during an MRI scan.

On August 9, 2020, we entered into a collaboration and commercialization agreement with Ascensia (the “Commercialization Agreement”) pursuant to which we granted Ascensia the exclusive right to distribute our 90-day Eversense CGM system and our 180-day Eversense E3 CGM system worldwide, with the following initial exceptions: (i) until January 31, 2021, the territory did not include countries covered by our then existing distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH (together “Roche”), which included Europe, Middle East and Asia, excluding Scandinavia and Israel, and 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions; (ii) until September 13, 2021, the territory did not include countries covered by our then current distribution agreement with Rubin Medical, which included Sweden, Norway and Denmark; and (iii) until May 31, 2022, the territory did not include Israel. Pursuant to the Commercialization Agreement, in the United States, Ascensia began providing sales support for the 90-day Eversense product on October 1, 2020 and Ascensia ramped up sales activities and assumed commercial responsibilities for the 90-day Eversense product during the second quarter of 2021.

In February 2022, we received approval from the FDA for the Eversense E3 CGM System. The approval for our third-generation sensor, with proprietary sacrificial boronic acid (“SBA”) technology doubles the sensor life to six months with MARD of 8.5%. Ascensia began commercializing Eversense E3 in the United States during the second quarter of 2022.

The ENHANCE clinical study was initiated as a pivotal study with the purpose of gathering additional clinical data to support an integrated continuous glucose monitoring (iCGM) submission for the Eversense E3 system using the SBA technology. In March 2022, we extended the ongoing ENHANCE clinical study to evaluate the safety and accuracy of the Eversense 365 System for a period of up to one year in the United States. In September 2022, we completed enrollment of the ENHANCE study and the last patient of the adult cohort completed the study in the third quarter of 2023. In November 2022, we submitted and in the first quarter of 2023 we received approval of an IDE for the enrollment of a pediatric cohort in the ENHANCE study. We began to enroll pediatric patients during the second quarter of 2023.

European Commercialization of Eversense

In September 2017, we affixed the CE mark for Eversense XL which indicates that the product may be sold freely in any part of the European Economic Area (“EEA”). The Eversense XL is indicated for a sensor life of up to 180 days. Eversense XL began commercialization in Europe in the fourth quarter of 2017. All such commercialization and marketing activities remain subject to applicable government approvals.

In May 2016, we entered into a distribution agreement with Roche. Pursuant to the agreement, as amended, we had granted Roche the exclusive right to market, sell and distribute Eversense in the EMEA, excluding Scandinavia and Israel. In addition, Roche had exclusive distribution rights in 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions. Roche was obligated to purchase from

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us specified minimum volumes of Eversense XL CGM components at pre-determined prices. On November 30, 2020, we entered into a final amendment and settlement agreement with Roche to facilitate the transition of distribution to Ascensia as sales concluded on January 31, 2021, including final purchases, and transition support activities. The distribution rights under the agreement expired January 31, 2021.

In June 2022, we affixed the CE mark to the extended life Eversense E3 CGM system, and Ascensia began commercialization in European markets during the second half of 2022.

Financial Overview

Revenue

We generate product revenue from sales of the Eversense system and related components and supplies to Ascensia, through the Commercialization Agreement, third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively “Customers”), who then resell the products to health care providers and patients. We are generally paid for our sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.

Revenue from product sales is recognized at a point in time when the Customers obtain control of our product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which we expect to receive in exchange for the product. Contracts with our distributors contain performance obligations, mostly for the supply of goods, and is typically satisfied upon transfer of control of the product. Additionally, a portion of revenue is recognized through our consignment program whereas small quantities of inventory are maintained securely at various health care provider locations within the United States. Under this model, the Company does not recognize revenue upon shipment of product. Rather, revenue is recognized when the product is consumed by a patient.

Customer contracts do not include the right to return unless there is a product issue, in which case we may provide replacement product. Product conformity guarantees do not create additional performance obligations and are accounted for as warranty obligations in accordance with guarantee and loss contingency accounting guidance.

Our contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Ascensia commercial agreement, revenue share. Variable consideration, such as discounts and prompt-pay incentives, are treated as a reduction in revenue and variable considerations, such as revenue share, is treated as an addition in revenue when the product sale is recognized. The amount of variable consideration that is included in the transaction price may be constrained and is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period, when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of management judgment. Depending on the variable consideration, we develop estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, and market conditions.

Concentration of Revenue and Customers

For the three months ended September 30, 2023 and 2022, the Company derived 93% and 97%, respectively, of its total revenue from one customer, Ascensia. For the nine months ended September 30, 2023, and 2022, the Company derived 92% and 95%, respectively of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent sales of sensors, transmitters and miscellaneous Eversense system components.

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Revenue by Geographic Region

The following table sets forth net revenue derived from our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product, for three and nine months ended September 30, 2023 and 2022:


	Three Months Ended				Nine Months Ended
	September 30, 2023				September 30, 2023
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
United States	$	3,930	64.5	%	$	7,885	54.9	%
Outside of the United States		2,167	35.5			6,475	45.1
Total	$	6,097	100.0	%	$	14,360	100.0	%


	Three Months Ended				Nine Months Ended
	September 30, 2022				September 30, 2022
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
United States	$	1,934	41.8	%	$	3,908	36.1	%
Outside of the United States		2,688	58.2			6,910	63.9
Total	$	4,622	100.0	%	$	10,818	100.0	%

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Results of Operations for the Three Months Ended September 30, 2023 and 2022


	Three Months Ended
	September 30,				Period-to-
	2023		2022		Period Change

	(in thousands)					(in thousands)
Revenue, net	$	426	$	126	$	300
Revenue, net - related parties		5,671		4,496		1,175
Total revenue		6,097		4,622		1,475
Cost of sales		4,925		3,866		1,059
Gross profit		1,172		756		416

Expenses:
Research and development expenses		12,769		10,985		1,784
Selling, general and administrative expenses		7,425		7,340		85
Operating loss		(19,022)		(17,569)		(1,453)
Other income (expense), net:
Interest income		1,460		544		916
(Loss) Gain on fair value adjustment of option		—		(8,592)		8,592
Exchange related loss, net		(4,569)		—		(4,569)
Interest expense		(2,425)		(4,801)		2,376
Gain (Loss) on change in fair value of derivatives		438		(28,948)		29,386
Impairment cost, net		—		(984)		984
Other income (expense)		15		(41)		56
Total other (expense) income, net		(5,081)		(42,822)		37,741
Net (Loss) Income	$	(24,103)	$	(60,391)	$	36,288

Total revenue

Our total revenue increased to $6.1 million for the three months ended September 30, 2023, compared to $4.6 million for the three months ended September 30, 2022, an increase of $1.5 million. This increase was primarily due to higher shipments of Eversense E3 in the United States in the third quarter of 2023 driving higher revenue in the current year offset by a higher revenue share percentage due to Ascensia.

Cost of sales and gross profit

Our cost of sales increased to $4.9 million for the three months ended September 30, 2023, compared to $3.9 million for the three months ended September 30, 2022. Our gross profit increased to $1.2 million for the three months ended September 30, 2023, compared to $0.8 million for the three months ended September 30, 2022. Gross profit as a percentage of revenue, or gross margin, was 19.2% and 16.4% for the three months ended September 30, 2023 and September 30, 2022, respectively. The improvement in gross margin was primarily driven by an increase in revenue partially offset by an increase to the revenue share percentage due to Ascensia.

Research and development expenses

Research and development expenses were $12.8 million for the three months ended September 30, 2023, compared to $11.0 million for the three months ended September 30, 2022, an increase of $1.8 million. The increase was primarily due to investments in next generation technologies including a $0.2 million increase in clinical studies activities and $1.6 million in personnel costs, consulting, contract fabrication and other research and development support services.

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Selling, general and administrative expenses

Selling, general and administrative expenses were $7.4 million for the three months ended September 30, 2023, compared to $7.3 million for three months ended September 30, 2022, an increase of less than $0.1 million.

Total other income (expense), net

Total other expense, net, was $5.1 million for the three months ended September 30, 2023, compared to other expense, net, of $42.8 million for the three months ended September 30, 2022, an increase in other income of $37.7 million. The change was primarily due to a $8.6 million change in the fair value adjustment of options, a $29.4 million change in the fair value of derivatives, a $1.0 million change in impairment cost, an increase in interest income of $0.9 million, and a decrease in interest expense of $2.4 million, partially offset by a $4.6 million extinguishment loss due to a partial exchange of the 2025 notes.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022


	Nine Months Ended
	September 30,				Period-to-
	2023		2022		Period Change

	(in thousands)
Revenue, net	$	1,176	$	555	$	621
Revenue, net - related parties		13,184		10,263		2,921
Total revenue		14,360		10,818		3,542
Cost of sales		12,358		8,711		3,647
Gross profit		2,002		2,107		(105)

Expenses:
Research and development expenses		38,003		28,088		9,915
Selling, general and administrative expenses		22,598		23,785		(1,187)
Operating loss		(58,599)		(49,766)		(8,833)
Other income (expense), net:
Interest income		3,879		878		3,001
Gain on fair value adjustment of option		—		41,333		(41,333)
Exchange related gain, net		14,207		—		14,207
Interest expense		(9,388)		(13,806)		4,418
Gain on change in fair value of derivatives		6,505		152,169		(145,664)
Impairment cost		—		(138)		138
Other income (expense)		194		(112)		306
Total other (expense) income, net		15,397		180,324		(164,927)
Net (Loss) Income	$	(43,202)	$	130,558	$	(173,760)

Total revenue

Our total revenue increased to $14.3 million for the nine months ended September 30, 2023, compared to $10.8 million for the nine months ended September 30, 2022, an increase of $3.5 million. This increase was primarily due to higher shipments of Eversense E3 in the United States in the third quarter of 2023 driving higher revenue in the current year offset by a higher revenue share percentage due to Ascensia.

Cost of sales and gross profit

Our cost of sales were $12.4 million for the nine months ended September 30, 2023 compared to $8.7 million for the nine months ended September 30, 2022, an increase of $3.7 million. Our gross profit decreased to $2.0 million for the nine months ended September 30, 2023, compared to $2.1 million for the nine months ended September 30, 2022. Gross profit as a percentage of revenue, or gross margin, was 13.9% and 19.5% for the nine months ended September 30,

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2023 and September 20, 2022, respectively. The reduction in gross margin was primarily driven by an increase in the revenue share percentage due to Ascensia, sales channel mix and increased manufacturing and logistics costs.

Research and development expenses

Research and development expenses were $38.0 million for the nine months ended September 30, 2023, compared to $28.1 million for the nine months ended September 30, 2022, an increase of $9.9 million. The increase was primarily due to investments for next generation technologies including a $6.1 million increase in clinical studies activities, an increase of $3.8 million in personnel costs, consulting, contract fabrication and other research and development support services.

Selling, general and administrative expenses

Selling, general and administrative expenses were $22.6 million for the nine months ended September 30, 2023, compared to $23.8 million for nine months ended September 30, 2022, a decrease of $1.2 million. The decrease was primarily due to a $0.6 million reduction in personnel costs, a $0.8 million reduction in other general and administrative costs to include recruiting and associated employee overhead and local tax expenses offset by $0.2 million increase in legal expenses.

Total other income (expense), net

Total other income (expense), net, was $15.4 million for the nine months ended September 30, 2023, compared to other income (expense), net, of $180.3 million for the nine months ended September 30, 2022, a decrease in other income of $164.9 million. The change was primarily due to a $145.7 million change in fair value of derivatives, a $41.3 million change in fair value of option, offset by an $14.2 million net extinguishment loss on the exchange of the PHC Notes and 2025 Notes, $3.0 million increase in interest income, $4.4 million decrease in interest expense, change in impairment cost of $0.1 million, and an increase of $0.3 million in other income, net.

Liquidity and Capital Resources

Sources of Liquidity

From its founding in 1996 until 2010, the Company has devoted substantially all of its resources to researching various sensor technologies and platforms. Beginning in 2010, the Company narrowed its focus to developing and refining a commercially viable glucose monitoring system. The Company has incurred substantial losses and cumulative negative cash flows from operations since its inception in October 1996 and expects to incur additional losses in the near future. We incurred total gross profit of $2.7 million, ($0.8) million, and ($17.4) million for the years ended December 31, 2022, 2021 and 2020, respectively. For the three months ending September 30, 2023, the Company had gross profit of $1.2 million and an accumulated deficit of $852.1 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, warrants, convertible notes, and debt. As of September 30, 2023, the Company had cash, cash equivalents and marketable securities of $125.4 million.

On September 8, 2023 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with the several financial institutions or entities party thereto (collectively, the “Lenders") and Hercules Capital, Inc., a Maryland corporation (“Hercules”), pursuant to which the Lenders have agreed to make available to the Company up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on September 1, 2027 (the “Maturity Date”).

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5.25% Convertible Senior Notes due 2025 (the “2025 Notes”). Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company (the “Exchanges”) up to $30.8 million in aggregate principal amount of the Company’s outstanding 2025 Notes (the “Exchanged Notes”) for a combination of $7.5 million of cash and newly issued shares of common stock (the “Exchange Shares”). The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.

In August 2023, the Company entered into an Equity Distribution Agreement, (the “Equity Distribution Agreement”) with Goldman Sachs & Co. LLC (“GS”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $106.6 million through GS as its sales agent in an “at the market” offering. GS will receive a commission up to 3.0% of the gross proceeds of any common stock sold through GS under the Equity Distribution Agreement. The shares will be offered and sold pursuant to an effective shelf registration statement on Form S-3 (the “Registration Statement”), which was originally filed with the Securities and Exchange Commission (the “Commission”) on August 10, 2023.

In November 2021, we entered into the 2021 Sales Agreement with Jefferies, under which we could offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150.0 million through Jefferies as our sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During 2023, the Company received $7.4 million in net proceeds from the sale of 9,944,663 shares of its common stock under the 2021 Sales Agreement. For the nine months ended September 30, 2022, Company received $34.4 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement. On August 7, 2023, the Company and Jefferies mutually agreed to terminate the 2021 Sales Agreement, effective as of August 7, 2023. At the time of termination, approximately $106.6 million remained available for issuance pursuant to the 2021 Sales Agreement.

On November 9, 2020, the Company entered into the Equity Line Agreement with Energy Capital which provided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital was committed to purchase up to an aggregate of $12.0 million of shares of the Company’s newly designated Series B Preferred Stock at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that the Company have less than $8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company had the right, at its sole discretion, to present Energy Capital with a Regular Purchase Notice directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provided that the Company was not permitted to affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock. The excess of the Purchase Price and the fair value of the Energy Capital option in the total amount of $37.6 million was recorded in additional-paid-in-capital.

On August 9, 2020, the Company entered into a financing agreement with PHC, pursuant to which the Company issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to PHC. The Company also issued 2,941,176 shares of common stock to PHC as a financing

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fee. The Company also has the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining FDA approval for the 180-day Eversense product for marketing in the United States before such date. The Company successfully obtained FDA approval in February 2022 and the option was not exercised.

On March 13, 2023, the Company entered into an Exchange Agreement with PHC, pursuant to which PHC agreed to exchange its $35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for the PHC Exchange Warrant to purchase up to 68,525,311 PHC Exchange Warrant Shares. The PHC Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per PHC Exchange Warrant Share. The number of PHC Exchange Warrant Shares represents the number of shares of common stock previously issuable upon conversion of the PHC Notes, in accordance with the original terms of the notes, including a number of shares in respect of accrued and unpaid interest through the closing date, plus additional shares with a value of $675,000 reflecting a portion of the future interest payments forgone by PHC. On March 31, 2023, the PHC Exchange was consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.

On March 13, 2023, the Company entered into a Securities Purchase Agreement with PHC, pursuant to which the Company issued and sold to PHC in a private placement a Purchase Warrant to purchase an aggregate of 15,425,750 Purchase Warrant Shares. The purchase price of the Purchase Warrant was approximately $0.97 per Purchase Warrant Share, representing the undiscounted, trailing 10-day volume weighted average price of the Company’s common stock through March 10, 2023. The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share. The issuance of the Purchase Warrants enabled PHC to maintain, as of the closing of the transaction, a 15% beneficial ownership for purposes of the Investor Rights Agreement, dated August 9, 2020, between the Company and PHC.

On the Private Placement Closing Date, the Company received aggregate gross proceeds of $15.0 million, before deducting private placement expenses payable by the Company.

Indebtedness

Term Loans

On the Effective Date, the Company entered into the Loan Agreement with the Lenders and Hercules, pursuant to which the Lenders have agreed to make available to the Company the Term Loan Facility, consisting of (i) an initial Tranche 1 Loan, which was funded on the Effective Date and (ii) the Tranche 2 Loan and Tranche 3 Loan, respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on the Maturity Date.

PPP Loan

On April 22, 2020, we received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan PPP Loan was evidenced by the PPP Note, in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).

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Convertible Notes

The following table summarizes our outstanding convertible notes at September 30, 2023:

Aggregate

Initial Conversion

Conversion Price

Convertible

Issuance

Principal

Maturity

Rate per $1,000

per Share of

Note

Date

Coupon

(in millions)

Date

Principal Amount

Common Stock

2025 Notes

July 1, 2019

5.25%

20.4

January 15, 2025

757.5758

1.32

As described above, on August 10, 2023, we executed a series of exchange agreements with certain holders of the 2025 Notes to exchange an aggregate principal amount of up to $30.8 million of 2025 Notes for a combination of cash and newly issued shares of common stock. For additional information on the 2025 Notes, see Note 12—Notes Payable, Preferred Stock and Stock Purchase Warrants in the accompanying unaudited consolidated financial statements.

Funding Requirements and Outlook

Our ability to grow revenues and achieve profitability depends on the successful commercialization and adoption of our Eversense CGM systems by diabetes patients and healthcare providers, along with future product development, regulatory approvals, and post-approval requirements. These activities, including our ongoing focus to grow covered lives through positive insurance payor policy decisions and continued development of Eversense 365-day product, will require significant uses of working capital through 2023 and beyond.

We believe that our existing agreements, including the transactions with PHC, evidence the mutual commitment of PHC and the Company to support the commercialization of Eversense and specifically for the Company, provide the financial resources for manufacturing of Eversense and continued product development. We expect that existing cash, cash equivalents and cash flows from our future operations will be sufficient to meet the Company’s current operating plans into 2025. As part of our liquidity strategy, we will continue to monitor our capital structure and market conditions going forward and we may access the debt and equity or equity linked markets for additional funding if the opportunity arises to enhance our capital structure, for changes to our operating plans, for financing strategic initiatives and to provide financial flexibility.

Cash Flows

The following is a summary of cash flows for each of the periods set forth below (in thousands).


	Nine Months Ended
	September 30,
	2023		2022
Net cash used in operating activities	$	(55,096)	$	(48,925)
Net cash provided by investing activities		53,518		19,532
Net cash provided by financing activities		21,544		31,416
Net (decrease) increase in cash and cash equivalents	$	19,966	$	2,023

Net cash used in operating activities

Net cash used in operating activities was $55.1 million for the nine months ended September 30, 2023 and consisted of a net loss of $43.2 million, $14.2 million net loss due to partial exchange of the 2025 Notes, a $6.5 million gain on change in the fair value of the 2025 Notes embedded derivative, a net change in operating assets and liabilities of $2.9 million (most notably increases in accounts receivable of $1.0 million and inventory of $2.5 million), partially offset by $5.1 million related to depreciation/amortization and other non-cash items, net and $6.7 million of stock-based compensation.

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Net cash used in operating activities was $48.9 million for the nine months ended September 30, 2022 and consisted of an $152.2 million change in fair value of derivatives on convertible notes, a $41.3 million loss on fair value adjustment of the option, and a net change in operating assets and liabilities of $2.3 million, partially offset by net income of $130.6 million, $9.8 million related to depreciation/amortization and other non-cash items and $6.5 million of stock-based compensation.

Net cash provided by investing activities

Net cash provided by investing activities was $53.5 million for the nine months ended September 30, 2023 and consisted of $122.2 million in proceeds from the sale and maturity of marketable securities, offset by $68.5 million in purchase of marketable securities and $0.2 million in purchase of capital expenditures.

Net cash provided by investing activities was $19.5 million for the nine months ended September 30, 2022 and primarily consisted of proceeds from the sale and maturity of marketable securities.

Net cash provided by financing activities

Net cash provided by financing activities was $21.5 million for the nine months ended September 30, 2023, and primarily consisted of $7.4 million in proceeds from issuance of common stock, $14.7 million in proceeds from the issuance of the PHC Warrants, and $24.5 million in proceeds from the issuance of the Loan and Security Agreement, partially offset by $15.7 million for the repayment of the 2023 Notes, $7.5 million for the partial repayment of the 2025 Notes, $1.6 million related to the settlement of equity awards, and $0.2 million for debt issuance costs.

Net cash provided by financing activities was $31.4 million for the nine months ended September 30, 2022, and primarily consisted of $34.4 million from the issuance of common stock pursuant to the 2021 Sales Agreement and $1.1 million for proceeds related to the exercise of stock options and warrants, partially offset by $2.9 million in repayment of the PPP loan and $1.2 million in tax payments related to the settlement of equity awards.

Contractual Obligations

As of September 30, 2023, there were no material changes in our contractual obligations and commitments from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on March 16, 2023.

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ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

Under SEC rules and regulations, because we are considered to be a “smaller reporting company”, we are not required to provide the information required by this item in this Quarterly Report on Form 10-Q.

ITEM 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the assistance of our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2023. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving such control objectives. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

ITEM 1: Legal Proceedings

From time to time, we are subject to litigation and claims arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Legal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties.

In February 2021, the Company received notice and accepted service of a civil complaint that had been filed in the Western District of Texas and styled Carew ex rel. United States v. Senseonics, Inc., No. SA20CA0657DAE. The complaint was filed by a relator under seal in May 2020 pursuant to the qui tam provisions in the federal False Claims Act. Prior to the unsealing of the complaint, the government declined to intervene in the case. The case, therefore, is being pursued only by the relator and his counsel. The complaint alleges the Company’s marketing practices with physicians for its product, Eversense CGM system, violated the False Claims Act, 31 U.S.C. § 3729 and the Texas Medicaid Fraud Prevention Law, Tex. Hum Res. Code § 36.002. The court granted the Company’s motion to dismiss the complaint on March 31, 2022 but permitted the plaintiff to file an amended complaint. The court dismissed the amended complaint and entered judgment in favor of Senseonics Holdings, Inc. on March 30, 2023. The relator filed a notice of appeal to the United States Court of Appeals for the Fifth Circuit on April 28, 2023. As of September 8, 2023, the case was fully briefed before the Fifth Circuit. The parties are now waiting for the Court to notify the parties whether it will hear oral argument on the case or decide the case on the briefs.

ITEM 1A: Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. Except as set forth below, there have been no material changes from our risk factors described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K.

Our recent exchange agreements with certain holders of our 2025 Notes will result in additional dilution and could cause our stock price to decline.

On August 10, 2023, we entered into separate, privately negotiated exchange agreements with certain holders of our 2025 Notes, pursuant to which the noteholders agreed to exchange an aggregate principal amount of up to $30.8 million of 2025 Notes for a combination of cash and newly issued shares of common stock. The number of shares we issued in connection with these exchanges was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The number of shares that issued in connection with the exchanges exceeded the number of shares underlying the 2025 Notes that were exchanged, resulting in incremental dilution to our common stockholders. Additionally, the shares that we issued to the noteholders will be eligible for immediate resale in the open market without restriction, which could increase the number of shares of common stock sold over the near term and could cause our stock price to decline.

ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds

On August 10, 2023 the Company entered into the Exchange Agreements with the Noteholders of the 2025 Notes. Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company up to $30.8 million in aggregate principal amount of the Exchanged Notes for a combination of $7.5 million of cash and the Exchange Shares. The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.

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The Exchange Shares were offered and sold pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended as a transaction by an issuer not involving a public offering.

ITEM 3: Defaults Upon Senior Securities

Not applicable.

ITEM 4: Mine Safety Disclosures

Not applicable.

ITEM 5: Other Information

Not applicable.

ITEM 6: Exhibits

The exhibits listed on the Exhibit Index hereto are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.


Exhibit No.		Document

3.1		Amended and Restated Certificate of Incorporation of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on March 23, 2016).

3.2		Amended and Restated Bylaws of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on March 23, 2016).

3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2018 (File No. 001-37717), filed with the Commission on August 8, 2018).

3.4		Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on August 18, 2020).

3.5		Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717) filed on October 26, 2020).

3.6		Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.5 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37717) filed with the Commission on November 8, 2022).

3.7		Amendment to Bylaws of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K (File No. 001-37717) filed with the Commission on March 5, 2021).

10.1		Form of Exchange Agreement, dated August 10, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37717) filed with the Commission on August 10, 2023).
10.2		Loan and Security Agreement, dated September 8, 2023, by and among the Company and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on September 11, 2023).

10.3		Form of Warrant Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on September 11, 2023).

31.1*		Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act.

31.2*		Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act.

32.1**		Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act.

101.INS*		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document)

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101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SENSEONICS HOLDINGS, INC.


Date: November 9, 2023	By:	/s/Rick Sullivan
		Rick Sullivan
		Chief Financial Officer
		(Principal Financial Officer)

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Senseonics (SENS) 10-Q2023 Q3 Quarterly report

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